President Nicolás Maduro assured the National Assembly last week that Venezuela would continue to pay what it owes

Venezuela cashed PetroCaribe loans at steep discount, gold swaps and issued high-yield bonds through PDVSA’s US subsidiary Citgo, during 2015 to honor debtSo far the market seems confident it will meet its next commitments: US$2.228bn in principal and interest on PDVSA and Venezuela bond due next month.

Slumping crude prices have investors and analysts warning of a potential messy default in Venezuela, with state-owned oil company PDVSA owing some US$10 billion in external debt payments due this year. With crude hovering around US$28 per barrel, Venezuela could have trouble satisfying its obligations.

Barclays said Venezuela will have difficulty avoiding a “credit event” in 2016 — and that is based on the bank’s forecast of US$37 oil, almost US$10 higher than current prices. That sentiment seems to be widely shared in the market, even though President Nicolás Maduro assured the National Assembly last week that Venezuela would continue to pay what it owes.

“It is a question of when, not if,” said Russ Dallen, a partner at Latinvest in Miami, referring to the possibility of a default. “The only thing that could change that is a sharp recovery in oil prices, and/or a bailout from Venezuela’s friends in China, Russia or Iran.”

Venezuela was able to stave off its troubles last year, leaving no stone unturned in efforts to drum up short-term financing. It filled gaps through cashing in PetroCaribe loans at a steep discount, gold swaps and issuing high-yield bonds through PDVSA’s US subsidiary Citgo. But many of these sources are now exhausted, and analysts think the country has few options left as the sovereign and PDVSA face some US$10 billion in bond payments this year.

Much of the debt coming due this year was issued by PDVSA, not the sovereign, and does not carry collective action clauses (CAC) — which could make a sticky situation even more difficult. Without CACs — which allows a supermajority of bondholders to agree to debt restructuring that is legally binding on all holders of the bond — Venezuela could be held hostage by minority investors.

For the moment, the market seems confident that Venezuela will meet its next commitments: US$2.228 billion in principal and interest on PDVSA and Venezuela bond payments due next month.

The sovereign’s 5.75% 2016s, which have a payment due next month, were trading at a mid-market price of around 92 cents on the dollar yesterday, up close to five points since Friday.
However adding to the unrest and sense of crisis, Venezuela’s biggest business grouping, Fedecámaras, issued a statement calling on lawmakers to reject Maduro’s decree in National Assembly. The groups said the crisis had began to take place in 2000 and was the direct result of Chavismo and the ruling Socialists.

Meanwhile the country’s Supreme Tribunal of Justice (TSJ) confirmed the economic emergency decree that will give Maduro powers to combat the crisis the country is suffering from, is constitutional.

“In a joint presentation from all magistrates and judges, the Constitutional Chamber of the Supreme Court, confirms the constitutionality of decree number 2184, wherein a state of economic emergency is declared throughout the country in accordance with the Constitution of the Bolivarian Republic of Venezuela and its legal system, for a period 60 days,” Venezuela’s highest court announced on its website.